Bilia AB

STO:BILI A

Earnings Call Transcript 2020-Q1

[Kristina Franzen, Chief Financial Officer]

Then I would like to welcome you all to this telephone conference about Bilia's Result for the First Quarter 2020. My name is Kristina Franzen, and I'm the CFO of Bilia. And together with me, I have...

[Per Avander, CEO & MD]

Per Avander, and I am the Managing Director for Bilia.

[Kristina Franzen, Chief Financial Officer]

And all the results that we will talk about during the presentation will be result including IFRS 16. And for those of you that usually listen into our telephone meetings, you know that we, last year, actually presented results excluding IFRS 16. However, as we do now have a comparative year, we said that we would change that and include IFRS 16. So that is just good for you to know.And before I let Per start, I would just like you all to mute your phones to make it a little bit easier to listen in for everybody. So I would really appreciate if you mute your phone. So Per?

[Per Avander, CEO & MD]

We would like to start with some highlights from the quarter 1 report. And after that, we can have a question and answer. And I will -- Please. Please...

[Kristina Franzen, Chief Financial Officer]

Could you please mute your phone? That would be really appreciated. And then you can turn it on when it's time for questions. Thanks a lot.

[Per Avander, CEO & MD]

Yes. Okay. We improved our results with SEK 41 million or 70% despite poor results in the West Europe due to the government restrictions for corona. We have the result in West Europe, SEK 60 million less than the quarter 1 last year. The Service Business improved the result with SEK 45 million or 21%.The operating profit in quarter 1 was SEK 279 million compared to SEK 238 million last year. It was the highest result ever, both in margin and Swedish krone (sic) [ krona ]. The margin was 3.7% compared to 3.5% last year. The Service Business had a result of SEK 263 million compared to [ SEK 280 million ] last year.We had one working day more in all countries, except Sweden, and Sweden had the same days if you compare to the last quarter 1. We had a good growth in Sweden and Norway, 8%. It's a strong growth, and Sweden closed 9%. In West Europe, we had minus 17% due to Luxembourg, we closed down 2.5 week in March; Belgium, 2 weeks; and in Germany, we closed down 2 outlets, plus the car sales for all our 7 outlets.We also report our service subscription, and we increased them with 9,000 if you compare to one year ago. And today, we have 116,000 compared to the target 130,000. We also report our tyre hotels and how many units we have in our stores, and we increased with 36,000 units compared to the last year. And today, we have 357,000 compared to the aggressive target we have, 600,000.The Car Business, we reported SEK 6 million lower result compared to the last year, SEK 11 million compared to SEK 24 million. The used car business reported SEK 24 million compared to SEK 36 million. It's a drop with SEK 12 million. In a historical perspective, it's a good result If you go back to 2018, 2017. We have a price pressure for the moment after the corona. And our strategy is to have a high turnover rate of the used car store and have a little bit lower margin.This is the fourth crisis for me in Bilia, started '92 with the bank crisis. And often, we have a drop in the price of used car for a while, but when we deliver fewer new cars, so after a while, the price is starting to increase again for used cars. And I never know what will happen this time, but 3 crisis before, we have had the same situation.New cars, we reported a loss on SEK 6 million compared to minus SEK 12 million last year. The underlying order taking in quarter 1 was 11% less if you compare to the last year. And we had a good situation of the order taking in January and February. And the last 2 weeks, we dropped a lot in order taking in all our countries.As I said before, West Europe closed down the phase so it was 0. And in Sweden and Norway, it was around half of a normal spring season of order taking. The underlying backlog increased under the first quarter with 1,800 new cars. Today, we have 13,600 new cars in backlog, it's the highest backlog ever. We expect we will reduce the backlog in quarter 2, quarter 3 due to the weaker order taking.Another effect can be that the factories have closed down. So today, they are starting to open up again here in Sweden, personvagnar Volvo. They opened up the last week. And in the beginning of May, the BMW factories will start to open up. But today, we don't have -- today, we can't say when we will start to deliver all the cars we have in the backlog. But I guess we'll have a little bit better in quarter 3 compared to quarter 2 because when they open up the factories, they will start on the low level from the beginning in May and up and higher tempo in June. Okay, Kristina.

[Kristina Franzen, Chief Financial Officer]

But here in the first quarter, we generated a positive operational cash flow amounting to SEK 250 million. It came primarily from lower working capital, inventory, accounts receivable and accounts payable.If you compare to last year, you could see that at that point in time, we were actually a little bit higher than we were at this year. But at that point in time last year, we actually had the inventory on a too low level during the first quarter. So that's the main reason.If we look at the financial position, we had or reported a liability towards the bank of SEK 247 million out of the total credit limit of SEK 1.5 billion. Again, if you compare to last year, we actually had a reported receivable. So we had cash on our hands. And the main reason for the deviation is that we have included in this credit limits this year, also the financing of our German operation, and that was not the case last year. If we would exclude the financing of the German operations, we would actually also, this year, have a positive balance towards the bank.There are available credit limits in Germany for that operation. So we could, if we desire, move back into those credit limits. Then as you might have seen, we've prolonged our credit agreement with our banks, Nordea and DNB during the year. They are prolonged with additional 3 years with a possible extension for another 1 plus 1 year. So that is good for us.If we look at the net debt, that decreased by SEK 135 million since the year-end, excluding IFRS 16 liabilities. And that means that we now have a ratio of net debt to EBITDA of 1.2x, which is basically in line with the rating we had by the end of last year.When it comes to the Annual General Meeting, you might have seen that, that meeting was postponed. There have now been a new day set. So it means that Annual General Meeting will take place on the 22nd of June, and that will then also include a decision or a proposal from the Board on the dividend. Per?

[Per Avander, CEO & MD]

If you are looking forward, start with the total market for 2020. In the beginning of 2020, the forecast in Sweden was 330,000 new cars. Bilia Sweden, an association for the different brands we have in Sweden, they have a new adjusted the forecast to 270,000 new cars. For me, personally, I think it's a little bit too high. So I guess it will be a little bit lower, 250,000. But I know that Bilia Sweden, they will come back with many new forecasts for 2020 because it's not so easy to navigate for the moment in the situation we are in.In all the other countries, we are in, we don't have a new forecast, but the forecast we have presented earlier, we can say it's too high. So maybe we'll come back later when we can have new forecasts for the other countries.If we are looking forward to quarter 2 and quarter 3 and see what will happen. We can see we have a good demand in the Service Business in April. We have good demand in used car, but what I told you before that we have a pressure of the price for the moment. And West Europe has been closed in April, and there is a discussion to open up now in the beginning of May or in the middle of May. But I guess it will affect us a lot when we talk order taking and demand in the Service Business.In Norway, for the moment, we are open up a little bit more. And the demand in the Norwegian market for the Service Business is quite good. I talked about the order taking and then to navigate there is not easy for the moment. The fleet business is running well, but the private person, they are a little bit careful for the moment. And if I talk about other countries we have been in -- so often the private person, they have started to buy newer used cars. And we don't know for the moment if we can get some new restrictions in some of other countries, close down some outlets or not. But yes, and often, we get the question about spare parts and maybe some of you have read in the newspaper, but for the moment we have spare parts because, one example is they close down France, Spain, Italy, and then we can get more spare parts. We had a lack of spare parts for body and paint shop, Toyota and Lexus, but today, it's much better again.

[Kristina Franzen, Chief Financial Officer]

So all in all, of course, the spreading of the coronavirus means that it has significantly changed the way we do operations within Bilia. And the first priority within our business operation is to have the highest possible security for both our customers and our employees. It means that we offer pickup of cars when the customers are coming into our workshop, if that is the desire for the customers. We do use protection equipment when we take care of the cars, both when they come into the workshop, but also when we are to deliver the cars to the customer. And of course, when we meet customers, we ensure that we keep the distance and that is, of course, valid also when it comes to meeting colleagues and co-workers within Bilia. When we now are about, hopefully, to open up the businesses in Luxembourg and Belgium we will make sure that we have masks and gloves and whatever is required in those countries to ensure that there is a safe operation. Our target is to run the business as much in a normal way as possible. However, we have, of course, also taken certain measures to try to minimize or lower the impact of our financial results. And those measures are, as an example, that we have stopped recruiting of new people, we have stopped to make purchases, unless it's really needed, we have stopped temporary or test employment of people. And we are utilizing the possibility for short time work that is offered by the governments and partly or shortly paid by the governments in the countries we operate in. Today, we are using that type of support for short-term in all countries in a little bit various extent, but in total, around 750 persons are effective by that type of measures.

[Per Avander, CEO & MD]

Okay. It was our highlights.

[Kristina Franzen, Chief Financial Officer]

Will there be any questions from anyone else listening in?

[Mika Karppinen, Research Analyst]

This is Mika from Handelsbanken. Can you hear me?

[Per Avander, CEO & MD]

Yes.

[Kristina Franzen, Chief Financial Officer]

Yes. We hear you loud and clear, Mika.

[Mika Karppinen, Research Analyst]

Okay. What -- could you elaborate a bit the magnitude of the price of used car pricing pressure? Is it double digit? Or can you say something on that line?

[Kristina Franzen, Chief Financial Officer]

Let's see, if we have followed. You said the price pressure on used car. And then you said, is it ...

[Mika Karppinen, Research Analyst]

Is it -- is the decline double-digit? Or can you elaborate the bit -- magnitude of the decline.

[Kristina Franzen, Chief Financial Officer]

Okay. You mean it -- the decline in the profit and in the margin level? Is that you're...

[Mika Karppinen, Research Analyst]

No. No. No, in the used car. How much the customers are paying for the car? How much they have declined in each car?

[Per Avander, CEO & MD]

Yes. It's not easy for the moment to say it, but if I looked at some figures, we can have an -- and it's an auction company, [indiscernible] is the name. They dropped a report last Sunday over their auctions, they are selling cars. And they said it's a little bit up again after they -- it was around 10% less in price for used cars. And for me, I see in total in -- now I talk Sweden, in total, in Sweden, there is too much cars in stock for all dealers for the moment. But everybody reduced the new car delivery for the moment. And after a while, it will be a lack of used car. And then the price is started to increase again. I have seen it in the last crisis 2008, it was the same situation at that time. And we can see there is lower for each week stock for used car in the market. But when the pricing is going up again, I can't give you a forecast for that. And in Norway -- another figure in Norway, it was -- I read in newspaper in Norway, a car magazine, you can say, they said the demand -- if you go back a couple of weeks ago, it was weaker, the demand for used car and last week, it was a little bit better again so there is a change. Because in Norway, they closed down much more what we have seen here in Sweden. It's total different between Sweden and Norway. Okay?

[Mats Liss, Equity Research Analyst]

Mats Liss, Kepler Cheuvreux. I just had a question regarding the sequential performance. Now, I mean, we are in -- way into the second quarter. And I guess it's normally a seasonally strong quarter with a lot of service being done ahead of the driving season and so on and after the winter season also. And you mentioned that the Swedish car service is doing well, and Norway is okay. What -- could you give some flavor there about -- I mean -- and then again, do you see that car orders have sort of slowed down and so on. But normally, I mean, the second quarter is very strong and the strongest of the year. Should we expect it to be similar to that? Or is it sort of a considerable slowdown to be expected now in the second quarter?

[Kristina Franzen, Chief Financial Officer]

I think normally the second quarter is the strong quarter for that. And I think right now, if we see outlook, it looks rather thin. But however, I think, one needs to be a little bit cautious, what will happen going forward, right?

[Per Avander, CEO & MD]

Have you in mind that than Luxembourg and Belgium still are closed, total closed and will open up in the middle of May. So half of the quarter is destroyed, if I can say so, in the Service Business and the Car Business. And when we open up in Luxembourg and Belgium, I guess it will be on the low level in the beginning, and the demand will be low as well. So it will be a really bad quarter for the West Europe. And in Sweden, we had the tyre season and the government prolonged the tyre season from the middle to April to the end of April, and it was really good for the business because, often, we have a long queue. Now we have time to discuss with the customer and find some additional sales. So the demand in Sweden has been in April, very good. And what we can see, we said in Norway, we had what you call it in English [cookie] --

[Kristina Franzen, Chief Financial Officer]

Short time work.

[Per Avander, CEO & MD]

Yes, the short time work in the Service Business, they are back in Norway now, and we see the demand is coming back in Norway now in the end of April. But to navigate in this situation, we are in now, it's not easy for us...

[Kristina Franzen, Chief Financial Officer]

Change plans to -- change rapidly. We have a little bit of respect for that. But that is where we are right now at least is one starting point, almost 1 month into the second quarter.

[Mats Liss, Equity Research Analyst]

Yes. I guess in Sweden is an important market for us, I guess, it's...

[Per Avander, CEO & MD]

Yes. Yes. It's important, but while the factory has been closed a couple of weeks. We don't get new cars. So -- and what I've said before today that 7%, 8% of all mechanics they are working with internal cars. We call it like that, new and used cars. And we will deliver few cars in this quarter. But we have a big backlog of new cars for quarter -- in the end of quarter 2 and quarter 3.

[Kristina Franzen, Chief Financial Officer]

Are there any other questions from anyone? No.So if there are no other questions, then Per, I think we would probably end for now, right?

[Per Avander, CEO & MD]

Yes.

[Kristina Franzen, Chief Financial Officer]

And of course, if there is anyone that has any additional questions afterwards, you are most welcome to give myself a call or Per a call, of course, and we will help you at that way also. So thank you for listening in, and we wish you a good day.

[Per Avander, CEO & MD]

Thank you very much.

[Kristina Franzen, Chief Financial Officer]

Thank you.